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Giant fund managers to bet again on ‘America First’ in 2019

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American stocks may be looking increasingly expensive compared with the rest of the world, but some major fund managers see their outperformance stretching into next year, fueled by earnings growth and a strong economy.

Investment firms with more than $3 trillion in assets are sticking with the so-called America first strategy. Nuveen has pared its allocation to non-U.S. developed market equities and JPMorgan Asset Management is dialing back global stocks positions in favor of U.S. shares. For its part, Fidelity International sees U.S. technology giants continuing to lead markets.

The S&P 500 has beaten a gauge of global stocks excluding the U.S. by more than 16 percentage points so far this year, a divergence that’s tested appetites to stick with underweight stances on other markets. Amundi Asset Management, Europe’s biggest asset manager, last month was looking at adding European stocks.

Yet the upcoming U.S. earnings season may show again why American stocks continue to lure. With the lowest jobless rate in almost 50 years and an economy fueled by President Trump’s tax cuts, American companies have yet to see much by way of pain from the escalating trade war with China.

“Over the next year, we believe U.S. equities will continue to outperform non-U.S. developed markets, fueled by stronger earnings growth and economic momentum,” Frank Van Etten, co-chief investment officer for multi-asset solutions at Nuveen, wrote in a report this week. Nuveen has $973 billion in assets under management.

While earnings momentum will ease significantly in 2019, the tax cuts can provide further juice to equity gains through the end of next year, according to Fidelity. The fund manager also sees profits at U.S. firms growing faster than in the rest of the world, boosted by robust cash flows, buybacks and mergers.

The crash of 2008 was intense but, in hindsight, short-lived. Market gains began a few months afterward and have continued with few exceptions.
October 3

“We expect the recent outperformance of the U.S. to continue for now, driven by strong earnings, robust economic growth and a pickup in capex,” Bart Grenier, global head of asset management at Fidelity International, said in a report this week, using a term for capital spending. “We don’t expect a dramatic change in the narrow market leadership by the tech giants.” Fidelity has client assets of $416.5 billion.

And America remains the way to go for Kerry Craig, a global markets strategist at JPMorgan Asset Management — despite valuations for U.S. stocks that have only been higher once before, at the tail end of the 1990s tech boom, according to the CAPE-Shiller price-to-earnings ratio.

“Leadership out of the U.S. can persist,” Craig said. “We would expect it to be the strongest area of returns, even though valuations have crept up a little bit,” thanks to strength in earnings, he said. JPMorgan Asset Management has $1.68 trillion in assets under management.

Bloomberg News